This article was published in the April 2007 issue of Australian Labour Market Statistics (cat. no. 6105.0).

UPDATED VOLUME MEASURES OF LABOUR UNDERUTILISATION

The extent to which the labour supply is unutilised - either through unemployment or underemployment - is of interest from a number of perspectives. From an economic perspective, interest has been focused on the amount of spare capacity in the labour supply and its potential to contribute to the production of goods and services. From a social viewpoint, there is concern that people whose aspirations for work are not met may suffer financially, personally and socially.

Labour underutilisation can be measured in a number of ways - in either population or hours based estimates. ABS produces both types of measures on an annual basis. The population based or headcount measures give an indication of the proportion of the population affected by labour underutilisation. The hours based or volume measures quantify the hours of available labour that are unutilised, and may be more relevant in analysing the spare capacity of the labour force.

The headcount and experimental volume measures have now been updated for September 2006. The data for the headcount measures are presented in tables 4.1, 4.2 and 4.3 of this publication. The data for the experimental volume measures are presented in this article.

Three volume or hours based measures have been produced and are summarised in table 1 below. For a more detailed explanation of these measures please see the article 'Labour underutilisation' in the July 2004 issue of Australian Labour Market Statistics.

The hours of labour sought by unemployed persons, as a percentage of the volume of potential labour in the labour force.

Volume underemployment rate

The additional hours of labour offered by underemployed workers, as a percentage of the volume of potential labour in the labour force.

Volume labour force
underutilisation rate

The total volume of unutilised labour in the labour force (hours sought by those in unemployment, plus additional hours offered by those in underemployment), as a percentage of the volume of potential labour in the labour force.

(a) The volume of potential labour in the labour force is equal to the hours of labour sought by unemployed persons, plus the hours of labour offered by underemployed workers (both utilised and unutilised), plus the hours of labour usually provided by employed persons who are not underemployed.

The volume of potential labour sought or offered by population groups contributing to the experimental volume measures is shown in table 2. In 2006, hours sought by the unemployed formed the largest component of the volume labour force underutilisation rate, accounting for 65% of the volume of unutilised labour in the labour force in September 2006.

2. Volume measures of potential labour in the labour force, Number of weekly hours: Experimental Measures - September 2006

Males

Females

Persons

'000 hours

'000 hours

'000 hours

Unemployed persons (hours of work sought)

9 123.2

6 276.1

15 399.4

Looking for full-time work

7 892.3

4 583.6

12 475.9

Looking for part-time work

1 231.0

1 692.5

2 923.4

Underemployed workers (additional hours of work offered)

4 024.5

4 228.4

8 252.9

Underemployed full-time workers(a)

1 141.1

152.1

1 293.3

Underemployed part-time workers

2 883.4

4 076.3

6 959.6

Total volume of unutilised labour in the labour force

13 147.8

10 504.5

23 652.2

Employed persons (usual hours of work performed)(b)

232 675.4

144 911.4

377 586.8

Full-time workers

217 927.6

107 548.6

325 476.2

Part-time workers

14 747.9

37 362.7

52 110.6

Total volume of potential labour in the labour force(c)

245 823.2

155 415.8

401 239.0

(a) Full-time workers who worked less than 35 hours in the reference week for economic reasons (e.g. stood down, on short time or insufficient work).

(b) Actual hours worked in the reference week for underemployed full-time workers and usual hours worked for all other employed persons.

(c) Hours of work sought by unemployed persons, plus the total hours of work offered by underemployed workers, plus the usual hours worked by employed persons who were not underemployed.

On average, unemployed people sought 30 hours of work a week in September 2006, with men seeking 32 hours compared to 27 hours for women (see table 3). Underemployed people are able to offer less additional hours because they are already working. On average underemployed people offered 15 hours of additional labour a week, with men again offering more hours (17 hours) than women (14 hours).

Table 4 compares the experimental volume measures of labour force underutilisation with the corresponding headcount or population based measures. For all three measures of labour underutilisation (i.e. unemployment, underemployment and labour force underutilisation), the experimental volume rates for September 2006 were lower than the corresponding headcount rates.

Unlike the headcount measures, the volume measures take into account the number of hours worked or sought by individuals and this has the effect of weighting people according to the number of hours they either worked or sought. If the hours offered or sought by the unemployed and underemployed were as high as those worked by the employed, then the headcount and volume measures would be of the same magnitude. However, this is generally not the case. For example, the large difference between the headcount and volume underemployment rates (5.0% and 2.1% respectively) reflects the large difference between the additional hours offered by the underemployed (15.1 hours a week) and those worked by the employed (36.4 hours a week).

(a) To provide greater comparability with experimental volume measures in this table, data on the number of underemployed full-time workers are sourced from the Labour Force Survey rather than the Underemployed Workers Survey.

Graph 5 shows the steady decline in the experimental volume labour force underutilisation rate from 7.7% in September 2002 to 5.9% in September 2006. This is consistent with other measures, including the headcount measures of underutilisation, in suggesting a general tightening in the labour market over this period. Although the volume labour force underutilisation rate for men has been consistently lower than for women over the four years to September 2006, the decline for men (from 7.0% to 5.3%) has been of a similar magnitude to that for women (from 8.7% to 6.8%) over this period.

While there has been a slight fall in the volume underemployment rate between 2002 and 2006 (from 2.4% to 2.1%), most of the decline in the underutilisation rate can be attributed to the fall in the volume unemployment rate (from 5.2% to 3.8%).

For further information on the concepts behind the volume measures, see the 'Experimental volume measures of labour underutilisation' article in the July 2003 issue of Australian Labour Market Statistics (cat. no. 6105.0).

For information about these and related statisticsplease call (02) 6252 5242 or contact the National Information and Referral Service on 1300 135 070.

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